i) Compliance Audit in relation to MMDAs

Government entities are subject to a variety of laws and regulations not generally applicable to private sector, profit-making entities. For example, local laws may restrict the authority of Metropolitan, Municipal and District Assemblies to issue debt, and they may be required to pay the proceeds from internally generated funds into special funds, etc. Other laws may restrict the disbursement of social service payments to eligible applicants.

Violations of any of these, among other laws and regulations, could have a direct and material effect on the operations of those entities and their financial statements.

The Auditor-General is required to bring to light the infractions of laws and regulations in the annual report.

The compliance audit determines the extent to which rules, policies, laws, covenants, or government regulations are followed by the entity being audited.

(2 marks)

ii) The Basis for Conducting Compliance Audit in MMDAs

1. Legal and Regulatory Framework
   The laws and regulations under which the entity being audited operates and of which it is required to comply. This will ascertain those laws and regulations to determine whether the auditee is fully aware of them and the consequences of any breach thereof.
2. Internal Rules and Procedures
   Internal rules, procedures, and directives involve ascertaining the entities’ procedures designed to ensure that the operations and activities are in compliance with the laws and regulations.
3. Extent of Compliance
   The audit is conducted to ascertain the extent of compliance or non-compliance with the laws and regulations and to determine whether non-compliance is deliberate or due to ignorance.
4. Consequences of Non-compliance
   The audit will determine the possible sanctions or punishment that would arise as a result of the non-compliance.

(4 points for 4 marks)

iii) Main Information in the Compliance Audit Report

1. Criteria for Compliance
   The laws and regulations governing the entity that ought to be complied with. This may be termed as the criteria against which the entity’s compliance is measured.
2. Conditions Observed
   The entity’s awareness of the laws and regulations and the conduct of operations in line with the laws and regulation. The conditions noted.
3. Effects of Non-compliance
   The consequences of the non-compliance will be clearly spelt out in the report.
4. Recommendations
   Recommendations are intended to enable the auditee to rectify and/or prevent future reoccurrence of the non-compliance.

(4 points for 4 marks)